Question
A firm is evaluating a cost-saving project that is expected to save the firm $225,000 before taxes each year. The companys tax rate is 30%.
A firm is evaluating a cost-saving project that is expected to save the firm $225,000 before taxes each year. The companys tax rate is 30%. The project requires equipment that will cost $1.35 million to install. The equipment has a 10-year lifetime and its value will be depreciated to zero over its life. It is expected that the equipment will be able to be sold for $50,000 in 10 years. The project also requires an initial net working capital investment of $5,000, which will be recouped at the end of the project. The required return for this project is 10%. a. (8 points) Find the project NPV. b. (3 points) Find project PI. c. (3 points) Find project payback period. d. (2 points) Should they pursue the project? Why or why not?
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